agreement of the 27 to reform the carbon market without burdening households
The Twenty-Seven approved, on the night of Tuesday to Wednesday, five key texts of the EU climate plan, agreeing in particular on the amount of a fund supposed to cushion consumers from the impact of a market carbon extended to cars and housing.
Meeting in Luxembourg, the European Union’s environment ministers adopted their common position on the objective of zero-emission new cars by 2035, the distribution of climate efforts between States and the imposition of targets for “sinks natural” carbon sources (forests, etc.), before talks with MEPs to finalize these texts.
But the proposal for a “social climate fund”, another key part of the plan presented by the European Commission in July 2021, was the subject of tough negotiations until late at night, threatening to block the agreement on the other texts of the package.
The European plan provides for obliging fuel and heating oil suppliers to buy quotas covering their CO2 emissions on a new carbon market, as is already the case today for electricity suppliers and certain industries.
A social fund approved at 59 billion euros
Worried about the additional cost for small businesses and the most vulnerable households, Brussels is proposing a “social fund” fed by the revenue from the new “housing and road transport” carbon market, in order to offset the impact of price increases, via aid direct “temporary” and the financing of work requiring their energy consumption.
Agreeing on the principle, the Twenty-Seven disagreed on the size of the fund. Brussels was aiming for an amount of 72.2 billion euros for 2025-2032: far too high for a group of so-called “frugal” states (Germany, Denmark, Netherlands, Finland, etc.).
Berlin had proposed to reduce the share of revenue from the new free carbon market to the fund to the bare minimum, lowering it to 20 billion euros, so that a larger share of this revenue would be donated to national budgets. Germany finally raised its proposal to 48 billion on Tuesday.
Conversely, many countries in Eastern or Southern Europe have hijacked the largely insufficient social mechanism.
France, which holds the rotating presidency of the EU, rallied the majority of states to a compromise of 59 billion euros for a more limited period (2027-2032), redirecting 11.5 billion euros to the social fund. Euros from carbon market revenues that were originally earmarked for the European ‘innovation fund’.
This strategy makes it possible to increase the level of the social fund without further cutting into the revenue from carbon emissions going to the States, a red line for the “frugal”.
Deemed insufficient by some countries
Paris boasted of a “fairly balanced compromise”, also observing that the Innovation Fund was “rather intended” for rich regions, which should therefore not suffer too much from seeing it amputated.
The agreement did not convince Poland, which denounced “decisions that risk undermining popular support for the climate plan”. Latvia is also worried about a “fund that is too small, unable to respond to the challenges encountered”, and hopes that it will be raised during the forthcoming negotiations with Parliament.
States also agreed on Wednesday to gradually phase out free emission quotas granted to certain industrial sectors, as a carbon tax on imports from third countries increases between 2026 and 2035.
The Council proposes a much more gradual rate of reduction than recommended by Brussels and MEPs. The free quotas allocated to airlines would be eliminated by 2027.
Finally, the Twenty-Seven validated the inclusion of maritime transport in the carbon market, but with “transitional” accommodations for winter navigation, “public service” journeys and the service of small islands.